Eisner's foes plan their strategy

Disney dissidents gear up ahead of annual meeting

By

RussBritt

PHILADELPHIA (CBS.MW) -- The stage was set for Wednesday's critical referendum on Walt Disney Co. Chairman Michael Eisner, as the two dissident shareholders trying to unseat him concluded their effort to persuade shareholders to vote against the longtime company chief.

Finishing up in much the same way as a political campaign, Roy Disney and Stanley Gold held a rally Tuesday night, just blocks from Philadelphia's Independence Hall, and asked shareholders to part ways with Eisner. They say the mercurial executive has become a liability, draining the company
DIS, -0.66%
of creativity and cutting into long-term shareholder value.

The two seemed resigned to the notion that whatever the results of Disney's proxy election, the company is likely to put a spin on the tally that will allow Eisner to remain atop the Burbank, Calif.-based entertainment giant. One option the Disney board might take is to split Eisner's role as chairman and chief executive, but Gold said that was unacceptable.

Indeed, Eisner's fate hinges not only on what percent of shareholders withhold their vote to retain him as board chairman, but how well it plays into each side's forecasts.

Gold and Roy Disney say it will take 15 percent to 20 percent of shareholders to tell Eisner it's time to go, while sources close to the company said last week that roughly one-third of the proxies were against the CEO.

Gold said Tuesday that it took 22 percent of the shares to oust former AOL Time Warner Chairman Steve Case.

"We think that a 15 to 20 percent vote to withhold is a vote of no confidence," Gold told reporters in a news conference. "Anything over 20 percent is very impressive."

Analysts have said that 30 percent of the shareholders voting to withhold their proxies on Eisner will signal a change. If the vote falls somewhere between each camp's predictions, both sides may be able to claim a victory, leaving open the question of what it will take for Gold and Roy Disney to oust Eisner.

In the midst of a hostile takeover attempt mounted by Comcast Corp.
CMCSKCMCSA, -1.06%
Eisner and other top executives will be on hand Wednesday for Disney's annual meeting, scheduled to begin at 10 a.m. in the Pennsylvania Convention Center here.

Disney officials did not respond to phone call seeking comment. The company has issued repeated statements outlining the progress made over the past 18 months, as well as upcoming prospects for the Dow Jones Industrial Average component.

Over the weekend, Disney issued a statement to shareholders that said: "This year, your company expects to grow its earnings from continuing operations in excess of 30 percent. In fact, as a consequence of the strategy management is implementing across all segments of the company, the company expects to deliver double-digit compound growth in earnings through at least 2007."

Shareholders began lining up for the meeting, a few blocks away from the annual meeting site in downtown Philadelphia.

Grace Matheny, a shareholder and Disney employee, said that it's time for a change at the top. Matheny was the first in line, arriving five hours before it was scheduled to begin.

"I just think that Mr. Eisner is not seeing the whole picture. He's letting the parks fall behind," Matheny said. "The parks have fallen into disrepair and Disney's animation division has lost much of its creative spark."

Jean-Francois Jordan, another shareholder and Disney employee, said the company has lost its focus on working as a team. "I think it's become too much, 'What can I do for myself?'" he said. "I think the Mouse has become a rat at the headquarters."

Both Matheny and Jordan, Disney store employees in Maryland, said they were given the day off by Disney to attend the special meeting.

Some came to the special meeting without having made up their minds on the issue of ousting Eisner. John DePalma, another stockholder and a resident of Kenilworth, N.J., said that company officials have made it sound as if Roy Disney "is a disgruntled ex-employee."

"I want to hear the other side of the story," DePalma said.

Once inside just before the meeting began, several shareholders said they were torn between Roy Disney and the family's legacy that he represents, and Eisner, who has been with the company for 20 years.

Once the Disney-Gold meeting finished, however, those on the fence said they were leaning against Eisner.

"I don't think he cares anymore. He cared at the beginning but he doesn't care anymore," said Betsy Williams, a shareholder who lives in Cincinnati. "I don't think it's sour grapes (on Disney and Gold's part). I think these people are concerned."

Some just simply want to see an improvement in the stock price, which is up 60 percent from its trough in 2002, but still well below that of its late 1990s peak.

"The way things are going now, if the stock doesn't go up, I'm going to have to get married again," said Diane Showers, a shareholder of 18 years.

If Gold and Roy Disney fall short of the threshold needed to unseat Eisner, it may be because of the duo's inability to reach the vast numbers of shareholders. No single institution or person controls more than roughly 3.5 percent of the company's stock.

The two were asked whether they should have tried harder to reach the so-called "retail" investors, or individual owners of small stakes.

"I have never gotten to enough shareholders. I didn't get to enough little shareholders. I didn't get to enough big shareholders. My goal was to talk to every shareholder and I assure you I fell way short of that," Gold said in an interview. "We're getting support up and down the line."

Roy Disney and Gold embarked on a quick, all-out campaign, trying to persuade institutions to withhold their votes against Eisner in a matter of a few weeks. They say Eisner is holding the company back. Roy Disney, nephew of the company's namesake and founder, said the company is undergoing a drain of key talent, much of it due to Eisner's brash managerial style.

"I think what's at stake here is the continued deterioration of the company," Roy Disney said, adding that morale has been going downhill over the last decade.

"I think there is not much chance you're going to see any improvement in shareholder value," he added.

Disney officials have pointed out the company's stock price is up 60 percent from what it was at its low point in 2002. Gold, Roy Disney's partner in Shamrock Holdings, maintains that that is a "false positive" and that the shares ultimately will decline.

Gold said the company's ill-fated $5.2 billion deal for the Fox Family Channel is an example of management's inability to turn a profit on a new venture. They also blamed Eisner for Pixar Animation Studios' recent decision to discontinue its joint production/distribution pact with the company.

"I think if Michael Eisner weren't with the company, we could make a deal with Pixar
PIXR
in a matter of weeks," Roy Disney said.

Nothing personal

He went on to say that he's trying to stay on an even keel on the issue of ousting Eisner, which he said was difficult, considering his lifetime connection with the company. His father formed the company with Walt Disney around the time he was born.

"I am doing my darnedest not to make it personal. But it is about personalities," Disney said. "I'm trying very, very hard not to be emotional about this issue."

The two men said that they were "surprised" by the Comcast offer and are unwilling to go along with it at its current figure. Comcast is offering roughly $3 less per share than what Disney currently is worth.

Disney's shares slipped 11 cents to close at $26.76, while Comcast fell 37 cents to $28.86.

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